Blimey, it’s been over two weeks since my last post. I’ve drafted about 6 posts, finished none and posted none. Oh well, among all that inefficiency I have carried on my weekly habit of updating a spreadsheet that tracks my spending and NetWorth.
<Repetition Alert> The most important of these goals is my savings rate. For the last couple of years I’ve been targeting 60%, and just missed out on it both years. Hopefully 2017 will be the year. Then, once 60% becomes normality, I’ll increase my target to 65%, then 70% and so on. At least until my happiness plummets off the edge into the Chasm of Despair. Then I’ve found my limit.
The second goal targets the growth of my NetWorth. Sure, it’s a little out of my control. I can steer it in the right direction with my savings rate, but it will also be at the whims of the market to some extent. <Repetition Alert End>
Savings Rate – 60% target
Being well and truly in the accumulation phase, my savings rate is the most important aspect of my plan to become Financially Independent.
A high savings rate will be the Nitrous Oxide in my savings journey and also the metric that is most within my control. I just need to apply a subtle upwards pressure to my earnings and a brute downward pressure on my spending. Result: higher saving rate and in the long run an increasing NetWorth.
My expectation is to keep my savings rate above 50%, that way I’m buying at least a month of freedom for every month that I work. Compounding just makes it even better. A rate of 60% is me trying to push myself, as the years to financial independence melt away as you push the savings rate north of 50%.
All things savings rate were ticking along nicely at the end of July, the Mr Z Financial-Independence-Machine had built up some steam and as a result a savings rate of 70.3% for the year to date.
Stepping up to my keyboard, I was a little nervous. I knew that Mrs Z and I had spent a fair amount of money, mainly on a holiday in late September. With shaking hands I began to pull the data together in Excel…
My frivolous spending resulted in a saving rate of 25.1% for August. The sharp dip in the graph above shows how out of character this is for 2017. It has felt like Mrs Z and I were making it rain money in August, our senses have been honed towards a higher savings rate and spending as much as we did felt unnatural.
The reason for the inflated expenses is that we paid for most of our holiday in September, flights and accommodation. It’s a matter of timing of cashflows. I have a savings account, that I put a small amount into each month. It earns a pathetic amount of interest. If it were there to purely generate return, it would be horribly inefficient. Thankfully it’s not. The purpose of this account is to build up slowly and then excrete itself all at once to pay for ‘large’ one off holiday expenses. This dirty habit stops me from using credit (overdraft or credit cards) to pay for holidays, or dipping into my ISA.
There’s a couple of ways to look at Spendy-Hands August. On the one hand it was the worst savings rate so far in 2017 by a long way, causing quite a substantial drop in the average for the year to date.
On the other, more optimistic, hand despite feeling like we spend way too much I still managed to save just over a quarter of my wage. Admittedly that is mostly just my pension savings, so I have chewed through all of my disposable income this month.
I kept coming back to this whilst looking at my numbers for the month. I’ve nearly spent all of my income for the month, and basically only saved into my pension. And it didn’t feel good. Yet this is how plenty of people live, spending everything thing they earn each month, saving nothing or just the bare minimum.
The higher than average spending in August has brought my average savings rate for the year down to 66.5%. This is still comfortably above my target of 60% for the year so I won’t grumble or dwell on it much more.
NetWorth – 45% annual growth target
Disclaimer – I don’t include the equity in my house in this calculation.
NetWorth-wise things were ticking over nicely at the end of July, I had seen a trend of steady growth since the start of the year. The growth a combination of rising investments and a consistently high savings rate.
August saw a dip in savings rate, down to the lowest for the year. But just what has this done to my NetWorth? Has it hampered my thundering NetWorth engine?
There’s some growth there for August, I promise. It’s just smaller than the previous month. See;
In fact, my NetWorth saw an average growth of 3.6% a month prior to July. And then it experienced only a 0.9% increase for August. A coincidence that it was a month with a poor savings rate? I think not. It’s a game of consistency!
My target for 2017 is a NetWorth growth of 45%, which at the moment I’m looking like just missing out on.
We have a couple of weeks holiday in September, a large chunk of which was paid for in August. Flights and accommodation have been covered already, so I’m hoping for my savings rate to start creeping up again in September. We’ve booked everything through Airbnb (affiliate link, burn in hell Mr Z!), choosing to base ourselves in a few cities and not move around too much. It’s the first time we’ve travelled extensively through Airbnb so it will be interesting to see how it goes.
Prior updates can be found right here.
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